Markit U.S. Manufacturing PMI Starts Off Solid in 2017

In its analysis Markit further noted that last month the sector witnessed 'the strongest cost growth rate recorded in the last 70 months'.

Local manufacturers reported an increase in new orders, buoyed by strong demand from China, Europe and the United States, although the pace of expansion eased slightly from December, the survey showed.

The official purchasing managers' index (PMI), which gauges conditions at factories and mines, came in at 51.3 in January, down from 51.4 the previous month. Where output dropped, survey respondents stated a lack of new work inflows and weak demand conditions.

In contrast, the employment index showed the largest increase in jobs for 8 months due to optimism over planned projects, while the sub-contractor index rose at the steepest pace for 13 months.

According to IHS Markit, which compiled the survey issued on Thursday, manufacturers faced a sharp increase in input costs amid reports of higher raw material prices in January, which translated into the selling prices again to protect their margins.

It said the rate of decline eased to a four-month low, but was in line with the average seen over the current 23-month sequence of contraction. Firms barely added to their staffing levels, partially due to spare capacity, and reduced growth of input buying and inventory accumulation, the research firm said.

This was widely linked to rising prices for imported materials at the start of 2017.

However, supply chain pressures persisted while firms maintained stock reduction policies. More new business and new export orders supported the increase in activity, helped by the recent depreciation of the euro and signs of improving global market demand.

The cash crunch is expected to hurt the economy in the October-December quarter of 2016, with economists predicting growth slowing to a near 3-year lows of 6.5 percent. The report also indicated decline in employment levels in both the manufacturing and non-manufacturing sectors.